107_fundmanagerreport-november2008

8/18/2019 107_FundManagerReport-November2008

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Askari Investment ManagementFinancial dvisors and Fund Managers of Choice

November 2008

Fund Manager Report

Head Off ice

501, 5th Floor, Green Trust Tower, Jinnah Avenue, Blue Area, Islamabad

+92 51 111 246 111, +92 51 281 3017

Regional Of fi ce Karachi

Mezzanine Floor, Bahria Complex III, M. T. Khan Road, Karachi.

+92 21 5635312-4, +92 21 563 5315

Regional Of f ice Lahore

C/o Askari Bank Limited, Plot No. 53, Block CCA, Phase II C, DHA, Lahore Cant

+92 42 574 6421-22, +92 42 574 6423

www.askariinvestments.com


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ECONOMIC UPDATE

Fund Manager ReportNovember 2008

Pakistan‟s economy showed some signs of stabilization after approval of a standby loan arrangement from the International Monetary

Fund (IMF). Commodity prices continued to fall including crude oil, petroleum products, cereals, cooking oil, steel, coal, and fertilizer, etc.CPI for the four months of FY09 was around 25%. On a positive note, Wholesale Price Index decreased by 1.87% during the month ofNovember due to declining oil prices. Current account deficit for the four months of FY09 increased by US$5.9 billion against US$2.9billion during the same period last year. Share of oil in the total import bill has increased to 38% from 30% last year. Foreign remittancesduring the first four months of FY09 rose 12.71% over the corresponding period last year. After getting US$3.1 billion from the IMF,Pakistan‟s foreign exchange reserves are expected to increase above US$9.0 billion. Pak rupee gained versus US dollar by 6.13% to Rs.78.85/US$ during the month. Government of Pakistan officially lowered its GDP growth forecast from 5.5% to 4.3% for FY09. TheStandard & Poor‟s rating agency lowered Pakistan‟s long-term foreign currency loan credit rating to CCC on November 14. Under the IMFstandby loan agreement, Pakistan plans to reduce its budget deficit to 4.2% of GDP, compared to 7.4% last year. Pakistan hopes to raiseUS$4.0 billion through “Friends of Pakistan” to meet the current account deficit. On the international scene, stock markets saw furtherdownside as MSCI‟s All Countries World Index lost 6.8% during the month. Emerging stock markets lost 7.4%. Monetary easing continuedas interest rates were cut further and additional stimulus packages were announced. Chinese and East Asian economies are expected togrow better than what was anticipated in October, as governments plan to spend huge amounts on infrastructure development. China isexpected to grow 10% compared to 11.9% last year. Unemployment is expected to rise in the developed world, deflation is likely, the US

and Euro zone economies are expected to shrink 0.9%, and 0.6% in 2009 while Japanese economy may grow 0.3%.

Fixed Income Market

Withdrawl trend in the foreign portfolio investmentfrom Pakistan saw a net US$26.4 million outflowingfrom Pakistan during the month. The total netinvestment withdrawal from Pakistan during FY09now stands at US$278.4 million. As talks on theIMF loan progressed, flight of domestic holdings offoreign currency seemed to slow down, as PakRupee started improving against major currencies.

As part of the agreement with the IMF, the StateBank increased the Discount Rate by 2%, to 15%;in case of further erosion of the foreign exchange,

the Discount Rate may be raised further. Creditdefault swap rate on Pakistan‟s eurodollar debt went up as high as 50%. During the month, 1-Month KIBOR increased initially as foreignexchange situation worsened and eased to the initial level after the IMF loan was negotiated successfully. However, rates at higher tenorsmoved up and stayed at higher level, implying that interest rates may remain high over a longer period. The SBP held two auctions thismonth to sell T-bills. On November 05, the cut-off yield on 3-month T-bill rose to 13.53% in an auction by the State Bank selling Rs. 51.54billion of the paper. In another auction conducted on November 19, the cut-off yield on 6-month T-bill rose from 12.66% to 14.01%. Thecut-off yield on 3-month T-bill rose to 13.85% from 13.53% on November 5. The Bank sold Rs 101.6 billion of the 3-Month T-bills and Rs1.87 billion of the 6-Month T-bill. All bids for the 12-Month T-bills were rejected.

Equity Market

The KSE 100 Index changed only by 0.05% duringthe month as the price floor set by the KSE Boardon August 27 could not be lifted during the month.

During the same period, MSCI EM Asia Index wasdown 10.7%. Since August 27, EM Asia Index wasdown 41.8%. Continued fall in international stockmarkets and tight liquidity situation in the countryforced the KSE Board to keep the floor intact.

Again, in spite of the floor, foreign investors tookout US$26.4 million from the stock market,perhaps through off-market transactions. The KSEvolume was even lower than the last month‟s historically lowest levels. Market capitalization remained unchanged. Market participantshad been anticipating a bailout package from the Government of Pakistan in the aftermath of successful IMF loan negotiations. Instead,the IMF has shown reservations on providing bailout to the stock market participants by an already cash starved Government. Negationsare still going on between the KSE Board, the SECP, the Ministry of Finance, and the IMF to agree the terms and conditions for the floorremoval. Some support from the Government is still likely. Although brokerage research is still more optimistic, our own estimates showthat corporate earnings in FY09 may decline by as much as 35%. Banking sector profits may decline about 30% as foreigners continue towithdraw funds. The Fertilizer and oil exploration and production companies may still show earnings growth. However, the autos, cement,insurance, oil refiners, and oil and gas marketing sectors may show fall in profits . Lower crude prices are likely to affect margins of refinersand oil marketing companies. As the global economic crisis worsens, and the law and order situation in the country remains uncertain,prospects of the stock market revival remain limited.


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Fund Manager Adnan Muzaffar Listing Lahore Stock ExchangeFund Type Open-end Income Fund Trustee Central Depository CompanyLaunch Date March 15-16, 2006 (IPO) Auditors Ford Rhodes Sidat Hyder & Co.Registrar Technology Trade Pakistan Ltd.

ASKARI INCOME FUND

NAV 93.90Fund Manager Report

November 2008

Investment Objective

The objective of the Fund is to provide investors a broadrange of asset classes so as to diversify fund risk and tooptimize potential returns. The fund invests in a variety offixed-income instruments including spread transactions, arange of debt instruments, short maturity securities andcertificates of investment with the view of seeking highyields while balancing risk. This offers the investors theliquidity and the facility to invest in or redeem from thefund at their convenience.

Fund Performance

November was a very difficult month for all incomefunds in terms of performance as nearly all of thesefunds had to write down their TFC portfolio in light ofSECP‟s Circular 26. As per the Circular, income fundswere directed to revalue the TFC portfolio downwardsby 5%-30% based on the rating of the TFCs. As aresult, income funds experienced steep declines inNAV, which ranged from 2% to 25%.

AIF also revalued its TFCs downwards, which resulted ina 13% decline in the TFCs portfolio. As a result, thefund‟s NAV declined by nearly 8% during November.

With the decline in prices, the TFC portfolio is yieldingclose to 20%, which in turn has pushed upwards thecurrent yield of the fund to around 15%. We also feel thatthe price decline in TFCs may be short-lived and theprices should recover partially once the liquidity situationimproves.

SBP during the month of November, increased thediscount rate from 13% to 15%. This resulted in the 6-month KIBOR increasing to the 15.67% mark by the endof the month. During the month, IMFapproved a $7.6billion Stand By Loan for Pakistan and the first tranche of$3 billion was received towards the end of the month.

With more inflows expected from different donor agenciesin the coming months, we expect the liquidity situation toease somewhat. This said, KIBOR will remain in the16%-17% range as a further discount rate hike isexpected in the coming months.

Portfolio composition remained essentially the sameduring the month. We continue to avoid exposure to CFSas we feel that currently the risk on this instrument faroutweighs the reward even though CFS is yielding morethan 40% these days. We believe that there will be a lotof pressure on CFS financees when the equity marketopens, which may put CFS transactions under some sort

of settlement risk.

General InformationMinimum Investment Rs 5,000Sales Load NoneManagement FeeBenchmark

1.5%3-month KIBOR

Risk LowManag‟nt Company Rating AM3 by PACRAPerformance Rating 5-Star by PACRA

Fund Size and GrowthNov 29 08 Oct 31 08

Fund Size Rs 4.1 billion Rs 5.0 billionNAV* 93.90 102.34* Dividend of Rs.2.37 paid as of September 30, 2008

Fund PerformanceReturn 1-Month 3-Month 6-Month Since IPO

AIF** -8.2% -6.3% -3.8% 19.5%Benchmark** 1.3% 3.7% 7.1% 32.3%** Actual Cumulative Return

Sharpe Ratio*** (0.4)Duration (months) 2.6Expense Ratio 1.78%***Risk-free Rate is 3-Month Treasury Bill Rate

Economic DataSep/07 Dec/07 Mar/08 Jun/08 Nov/08

KSE100 Index 13,351.8 14,075.8 15,125.3 12,289.0 9,187.16M KIBOR 9.97% 10.00% 10.32% 14.19% 15.67%CPI Inflation 8.37% 8.79% 14.12% 21.53% -


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Fund Manager Usman Ashraf Listing Lahore Stock ExchangeFund Type Open-end Asset Allocation Fund Trustee Central Depository CompanyLaunch Date 10 September 2007 (IPO) Auditors Ford Rhodes Sidat Hyder & Co.Registrar Technology Trade Pakistan Ltd.

ASKARI ASSET ALLOCATION FUNDNAV 61.6323

Fund Manager ReportNovember 2008

Investment Objective

The fund seeks to maximize long-term total return(stocks plus income) while incurring lesser risk than afund comprising entirely of stocks. The asset universe ofthe fund includes stocks, term finance certificates,Government bonds, treasury bills, certificates ofinvestment, continuous funding system, and spreadtransactions (Redi-Future), etc. The fund seeks toprovide its investors with returns that are 5% higher thanthe benchmark (KSE-100 index).

The Fund was launched (Pre-IPO) on June 2, 2007 andthe IPO took place between Sep 10 and September 13,2007.

Fund Performance

The KSE 100 index changed a meager 0.04% duringthe month as the prices frozen by KSE Board on August 27 remained in force. The hope of a marketstabilization fund eluded as IMF imposed a conditionof „No bail out fund for bourses‟ while approving US$7.6 billion financial package. At the end of the monththe Fund was invested 58% in equities and 42% in

TFC and equivalent.

The corporate earning of the listed companies is likelyto erode in coming year. It would be worst after a gapof 9 years. Except for the Fertilizer and IPPsprojections of all other sectors will be adjusteddownwards. Banking earnings are going to declinearound 15% in 2009 mainly due to lower thanexpected increase in deposits, deterioratingconditions in capital markets and rising NPLs.

With the Government of Pakistan‟s announcement of theUS$7.6bn financial bailout from the IMF, sovereign default

concerns have more or less fizzled out. With the firsttranche of around $3bn already received, the foreignreserve position will improve in the short-term. This willalso help Government of Pakistan to honor its US$3.0bndebt servicing commitments. The question however,stands whether this funding will be sufficient to finance theinherent weakness in Pakistan‟s trade account, now thatcapital inflows are drying amidst dire global financialconditions.

.

General InformationMinimum Investment Rs 5,000Sales Load 2.5% front-end, 0.0% back-endManagement Fee 3.0%Risk MediumManag‟nt Company Rating AM3 by JCR-VIS and PACRA

Fund Size and GrowthOct 31 08 Nov 30 08

Fund Size Rs 336 mn Rs 323 mnNAV* 61.6323 61.6323* Dividend of Rs. 1.99 paid as of June 30, 2007

Fund Performance

Rolling Return 1-Month 3-Month Since Inc. FY09 AAAF 0.00% 0.00% -38.66% -32.43%KSE 100 0.05% -0.23% -28.96% -25.24%

Portfolio Details P/E (FY09) 6.95Beta 0.90R2 86.29%Max Drawdown (DD) 39.85%Number of days in DD 444Standard Deviation* 7.15%* On monthly basis

Economic DataDec/07 Mar/08 Jun/08 Oct/08 Nov/08

KSE100 Index 14,075.8 15,125.3 12,289.0 9,182.9 9,187.16M KIBOR 10.00% 10.32% 14.19% 14.52% 15.67%CPI Inflation 8.79% 14.12% 21.53% 23.91%

Top Ten Holdings of the AAAF

Arif Habib Securities Ltd.Pakistan Oil Field Limited

Adamjee Ins. Co. Ltd.Sui North Gas Co. Ltd.JS Investments Ltd.

Fauji Fertilizer Bin QasimEngro Chemical

Lucky CementOil & Gas Dev. Co.

Packages Ltd.

107_fundmanagerreport-november2008

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